#2: Don’t know where to begin sorting out your finances? It’s not where you think it is

28th September, 2020

Welcome to the Idiot Money newsletter. The newsletter that will keep telling you sorting out your finances starts with sorting out your head, despite knowing you’ll probably go broke before you believe it.

This week: becoming wiser with money by understanding that despite every temptation to the contrary, stop-gap financial housekeeping is the falsest of economies.

Everyone acts as if managing their money begins with knowing which investment to hold in which account, and worrying about mindset changes later. This is why everyone fails to make the most of the money in their life.

Your bank account is growing. You've heard your money should be 'working harder for you' but you're not sure what that means and the person you heard it from had the aura of an estate agent.

Maybe you own something spicier. Maybe in an ISA*. Maybe a cash ISA because it felt sexier than a current account, and though you remember hearing that cash ISAs were pointless, you never took the time to work out why, so it's still there. (*non-UK readers should insert their own alternative)

Maybe you own proper investments. Shares and stuff. Perhaps an index-tracker because you did the requisite five minutes of research to work out this was the sensible thing to do. Which it probably was. Until you made one of a dozen mistakes, like buying it through Hargreaves Lansdown, or 'supplementing' your tracker with a fund you read about in the paper.

You know something goes into your pension every month, but you're buggered if you know what it's doing when it gets there. You vaguely remember choosing an allocation when you opened it, but now you've got half a dozen pensions, no unifying strategy and no confidence in how much is going in... or should be going in.

Maybe investing feels a bit scary or complicated. You could use some help, but you're not sure what sort. So when someone sufficiently trustworthy pops up offering to ease your burden for a small fee, you'll probably pay it.

You'll also probably do what they say, with minimal verification. Meh, it's only your life savings. And you're sure compounding small inefficiencies can't be *that* costly.

It's not perfect, but it's something; you'll deal with it properly later. It's a reliable plan. Just ask all those who've ever waited to do important life things just as soon as they got 'rich', or promoted, or had children, or got rid of children, or retired, or went on holiday, or bought that new bit of exercise equipment.

Alas, all diets are doomed to fail, especially those scheduled to start on Monday.

You can sort your finances 'perfectly', but without getting your philosophy sorted first, you may be less fucked up, but you'll be far from flourishing. A grounding philosophy wisens up our defaults, linking them to a vision big enough and cool enough to get us to stop and think things through, rather than being blindly swept away by self-deception. [Continued...]

Sorting your finances is not your goal.

There is only one goal. [Continued...]

'Sorting out the finances' may be a mainstay of many a to-do list, but like so many of its aspirational brethren, the sorting ends up indefinitely shelved while we get caught in a fire-fighting flummox of acting first, and forgetting to ask questions later.

Even if you do 'sort' them, nothing's meaningfully changed.

It's possible to have perfectly organised finances and live a shitty life. The opposite isn't true. Sort your relationship with money – wire your brain so it's not baffled or scared – and you'll organise stuff as a side-effect.

You got stuck, or into a half-arsed – or even totally shitty – mess with money because of your mindset. Paying someone to set a few things up for you (even if they don't do it terribly) hasn't changed this mindset. It's enabled it. Your problems will return, just as reliably as the person who didn't stick to their last diet won't stick to their next one. It wasn't a lack of financial knowledge that meant your financial life was subpar. And it won't be more knowledge that saves it.

We believe in financial orthotics. But that's an inhuman crock of shit. We need to build strength in bare financial feet, not pay for padding to temporarily numb the pain. The self-deception of confusing 'quality of life' with 'access to comfort' is the world's slowest and silliest suicide note.

In the short-term, it's simply far more effective to get comfortable in the bad position than it is to rediscover one's innate human strength in the good one. Yet foot problems are worsened by orthotics, not solved by them. And mental orthotics are more devious, more deceptive, and more dangerous. [Continued...]

Sometimes the extreme lifetime cost of sitting in cash or hiring a crook or a well-meaning idiot (the result is the same in either case) is enough to trigger learning how to not be scared. Most of the time it isn't.

The housekeeping is still important, of course (it's what Part Three of the book is dedicated to) and finding great help is possible (Part Four is about that), but tidying up your thinking is more important still.